09 February 2007

Nuke Redux: North Korea Regains the Initiative

The resumption of the six party nuclear talks in Beijing has picked up where they left off back in 2005, with the Sept. 19 Joint Statement. While there have been two other meetings (in November 2005 and December 2006), neither moved beyond North Korean demands that the September 2005 USA PATRIOT Act action against Banco Delta Asia in Macao, which froze $24 million in various North Korean funds, but more importantly triggered a chain reaction in which numerous financial institutions stopped doing business with any North Korean-related account. But on Feb. 8, the parties picked up where they left off 17 months earlier, and began laying out steps for the dismantlement of North Korea’s nuclear program.

Now, without addressing the issue of whether this round will really end North Korea’s nuclear capabilities (it won’t) or whether North Korea really even intends to get rid of their nuclear program (they don’t), lets look at what significance there has been in the nearly two year delay in the nuclear negotiations.

Since the Sept. 19 Joint Statement, North Korea has seen some of its financial interactions impacted. There are anecdotal stories from China that North Korean mid-level officials, when they visit China, bring paintings and antiquities to sell for hard currency. But, countering these minor impositions, there has been little fundamental economic impact on North Korea.

China hasn’t invested too much additional into North Korea, but neither has Beijing cut off trade and economic assistance. South Korea hasn’t shut down the Kumkang tourist project or the Kaesong industrial zone (and in fact, Seoul can’t strike a FTA agreement with Washington because Washington won’t include Kaesong-made goods in the agreement, meaning the South Koreans have little intent of shutting down the operations). Japan has cut trade with North Korea to near zero (at least officially), but Pyongyang has other ways to get Japanese goods (primarily via China or Mongolia).

In general, then, North Korean economics have really not suffered all that much from the banking sanctions. There have been inconveniences and embarrassments, but in the end, it was only $24 million frozen, not a really large sum. And it looks like Washington is preparing to release about half of that back to the North Koreans (a $12 or $13 million repayment to restart nuke talks).

Perhaps more importantly, since the last substantial talks broke down, North Korea has tested its Taepodong-2 (with questionable success) and tested a nuclear device (also with questionable success). In both cases, Pyongyang has done was Washington demanded it not do – and gotten away with it. All the previous assumptions of U.S. action if North Korea acted up were thrown out the window. North Korea returns to the talks feeling more confident and capable.

What is perhaps most important to remember is that North Korea was not pressured or backed into the negotiations. It is Pyongyang that creates the periodic nuclear crises to force Washington, Beijing, Seoul, Tokyo and Moscow into talks. North Korea has chosen to restart the talks – and has demonstrated once again that it can shape the actions of major countries. Washington conceded and began to talk about lifting the banking sanctions. Washington offered earlier fuel shipments and other rewarding moves to North Korea. Washington has apparently decided to soften its demands and start making a phased deal with North Korea.

So overall, North Korea has delayed talks for nearly a year, got away with a missile and nuclear test, drawn everyone back to the table with sweeter offers, and simply picked up where it left off. Isolated crazy and falling apart, North Korea seems to have its act together when it comes to manipulating the world for its own end. And all just a little over a week before Kim Jong Il’s birthday...